G.R. No. 125778 ; June 10, 2003
INTER-ASIA INVESTMENTS INDUSTRIES, INC., Petitioner, vs. COURT OF APPEALS and ASIA INDUSTRIES, INC., Respondents.

FACTS

Petitioner Inter-Asia sold all shares of FARMACOR, INC. to respondent Asia Industries under a Stock Purchase Agreement dated September 1, 1978, for P19,500,000. The Agreement contained warranties, including that FARMACOR’s audited financial statements fairly presented its financial position and that it had a Minimum Guaranteed Net Worth of P12,000,000 as of September 30, 1978. The Agreement was amended, allowing respondent to retain P7,500,000 from the purchase price pending submission of the final audited statements, from which any shortfall in the guaranteed net worth could be deducted.
The audited financial statements prepared by Sycip, Gorres, Velayo & Co. revealed FARMACOR had a net worth deficiency, resulting in a total shortfall of P13,244,225 against the guaranteed P12,000,000. This adjusted the contract price to P6,225,775. Since respondent had already paid P12,000,000, it was entitled to a refund of P5,744,225. Petitioner’s president later proposed, via a January 24, 1980 letter, to reduce the refund claim to P4,093,993 in exchange for petitioner paying P759,570 for certain superstructures. Respondent agreed, but petitioner reneged.

ISSUE

The primary issues were: (1) whether the letter-proposal signed by petitioner’s president was binding on the corporation; (2) whether petitioner breached its warranties; and (3) the propriety of awarding attorney’s fees.

RULING

The Supreme Court affirmed the rulings of the lower courts with modification regarding attorney’s fees. On the binding nature of the letter, the Court held it was valid and enforceable. While corporate acts generally require board authorization, the president’s act was within the scope of his apparent authority as the corporation’s chief executive, especially since it pertained to the settlement of an obligation arising from the very contract he executed on the corporation’s behalf. Petitioner was thus estopped from disclaiming the letter’s validity.
On the breach of warranties, the Court found petitioner liable. Petitioner warranted that the financial statements would fairly present FARMACOR’s position. The subsequent SGV audit, which covered the period including months before the Agreement’s execution, conclusively showed the net worth deficiency. Petitioner’s argument that the statements were “self-serving” was unavailing, as it was estopped by its own warranty regarding their fairness and accuracy. The breach was established.
However, the Court deleted the award of attorney’s fees. The award lacked the specific factual, legal, or equitable justification required under Article 2208 of the Civil Code. The lower courts’ decisions did not explicitly state the legal basis for such an award in their text, rendering it improper. The petition was partly granted, affirming petitioner’s liability but deleting the attorney’s fees.